Dear Members,
We discussed the potential problem of inflation, and soaring interest rate in https://www.welhatchamber.co.uk/fixed-rate-borrowing/
We have now heard back from Lloyds Bank who say
As the scheme provides interest only for 12 months and capital repayment holiday for 6 months, the loans can only be provided on a base rate /variable rate loan at the outset.
After 12 months when the client will begin to pay interest, a discussion will take place to either progress as a variable rate or the client can consider other options i.e. fixed rate
THIS IS IMPORTANT.
The question of will Inflation rear its ugly head again is a matter of WHEN not IF
When it does given the amount of QE, and general printing of money that has gone on recently, it will take off. The readjustment back to real values will be a shock to the markets.
Dont get caught on this one.
Nick
Martin Munro
Hi Nick – the question of inflation is one for the economists. I have heard comment that suggests deflation rather than inflation because of the shock to demand, the loss of consumer confidence and low oil prices but your warning is absolutely valid. Is the bank saying that companies can refinance the initial loan at a fixed rate?
Nick Brown
Martin hi,
Yes good point. On one side we have inflationary pressure from printing money, the other side deflationary pressure from a lack of demand. The “Where will the inflation come from?” arguement.
So potential for deflation in the short term, then inflation as demand returns.
We will know more about the timing of that in a year’s time.
Yes Lloyds Bank is saying that at the end of the initial 12 month period, there will be option to run with a fixed or variable rate.
The quote in italics is verbatim from the bank.
Nick